Jun 14, 2023

Working harder, not smarter: Canada’s labour productivity growth has been negative in nine of the last 10 quarters

The good news from the first quarter’s economic data for 2023 was that real GDP rebounded, after a mild drop in the previous quarter. With the Bank of Canada aggressively raising interest rates to bring inflation back under control, many economists have been expected a recession, which hasn’t materialized yet.

In fact, Canada’s economy has held up remarkably well. But if you dig into the numbers, you’ll see a big problem. In the business sector in the first quarter of 2023, hours worked grew faster than output. This is another way of saying that labour productivity (i.e., real GDP produced per hour worked) fell.

Our poor labour productivity performance matters because its a key driver of long-term living standards, and our collective ability to pay for things we want, including public services.

Unfortunately, as the chart shows, last quarter’s results were nothing new. Labour productivity growth was negative in each of the last four quarters, and currently is on a remarkable bad stretch: negative in nine of the last 10 quarters!

The rapid adoption of remote work and the increasingly amazing potential of artificial intelligence was supposed to unlock a productivity boom. But the hype hasn’t shown up in the statistics so far. Let’s hope we’re just living through a pause before the payoff. Because productivity is too important, and we need to turn things around quickly.

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